Background According to the World Health Organization (WHO), functional disability associated with severe mental illnesses was pervasive, affecting everyday life, and has a significant contribution to the global functional disability. The severe mental illnesses (schizophrenia, major depressive disorder, and bipolar disorder) were among the top ten leading causes of functional disability as indicated by years lived with a functional disability. These illnesses hurt the academic, occupational, social and family functioning of the patients. Despite this fact, functional disabilities and its contributing factors among severe mental illness were not clear. Therefore this study will assess the prevalence and associated factors of functional disabilities among patients with severe mental illnesses. Methods Institutional based cross-sectional study was conducted from Feb 03 to March 10, 2020, with a total of 423 participants in Mekelle, Ethiopia. A stratified random sampling method was included in the study. Functional disabilities were measured by WHO functional disability assessment schedule version two (WHODAS 2.0). Bivariate and multiple logistic regression analyses were performed to determine the association between independent and dependent variables. Results The prevalence of functional disability among severe mental ill patients was 88.1% (51.3% mild, 27.5% moderate & 9.3% sever functional disabilities). This study revealed that, being jobless [AOR=4.01, 95% CI (1.77, 12.35)], duration of illness ≥11 years [AOR=2.99, 95% CI(1.17,7.64)], those who had poor treatment adherence [AOR= 2.79, 95% CI (1.06, 7.35)], drug adverse effects [AOR= 4.61, 95% CI (1.79, 11.84)], poor social supports [AOR=6.58, 95% CI (2.01, 21.56)], and moderate social supports [AOR=4.16, 95% CI (1.88,9.20)] were significantly associated with functional disabilities. Conclusion The prevalence of functional disability was found to be high. Being jobless, duration of illness ≥11 years, medication non-adherent, having drug side effects and having poor or moderate social support were significantly associated with functional disabilities. Therefore, when treating patients with severe mental illness giving especial attention the bio-psycho-social aspect of treatment is essential.